Uncertainty surrounding Donald Trump’s position on drug pricing and reform has evoked a nervous response from investors.

Pharma stocks suffered following comments on Jan. 11 that pharmaceutical companies are “getting away with murder,” and an implied threat that the ban on federal government negotiating drug prices for Medicare could be lifted.

Three weeks later, the newly inaugurated president had seemingly U-turned on his previous comments following a meeting with CEOs of Merck & Co., Novartis AG, Johnson & Johnson, Eli Lilly & Co., Celgene, and Amgen, as well as the head of PhRMA. He distanced himself from price controls, referring to it as price fixing:

“I'll oppose anything that makes it harder for smaller, younger companies to take the risk of bringing their product to a vibrantly competitive market. That includes price-fixing by the biggest dog in the market, Medicare … We’re going to be lowering taxes, we’re going to be getting rid of regulations that are unnecessary.”

Stocks rallied in response to the turnabout. Fostering competition by lowering barriers to entry is a more traditional Republican stance, and it seemed that the party had reined Trump in from his previous campaign pledges, much to the relief of the industry.

A week later, White House Press Secretary Sean Spicer muddied the waters with another conflicting statement. In response to a question asking for clarity on whether the administration supports Medicare drug price negotiation, Spicer replied, “He’s for it, yes”, continuing, “The easier way to look at this is to look at what other countries have done: Negotiating costs to keep those down.” The markets once again reacted negatively.

Trump’s inconsistency is disconcerting for all stakeholders and it would be unwise to make assumptions about his goals. There are two obvious pressures shaping Trump’s platform, which could explain the president’s capriciousness.

Firstly, Trump is still attempting to appeal to the populist wave that swept him to power. This is evident in the swift issuance of executive orders to drive many of his more prominent campaign pledges. The pharmaceutical industry is unpopular and Trump wants to be seen to fight for the everyman. Polls by the Harvard T.H. Chan School of Public Health, the Kaiser Family Foundation and others indicate that there is strong support in the public both sides of the aisle for allowing Medicare to negotiate drug prices.

The Republican congress largely opposes the repeal of the “Non-interference Clause” and would disagree with any expansion of state interference. They are undoubtedly pressuring him to toe the party line. Trump may have to make concessions to garner enough political capital to push through his other interests. Furthermore, Trump has shown that on issues outside of his understanding he is very impressionable. With these factors in mind, the U-turn following his meeting with pharma execs at the end of January is perhaps in line with his previous behaviour.

While we can’t be certain what policies will be enacted, deregulation seems more likely in the short term. Trump’s economic policy is centered on incentivizing and protecting domestic business. He has promised a “phenomenal” business friendly tax reform package over the next few weeks, and has pledged to “knock out two regulations for every new regulation” across the board, all of which amounts to a very pharma friendly agenda which will have no trouble getting through the Republican led congress. Support for enabling Medicare negotiation is less guaranteed, and if Trump’s words are genuine intentions rather than empty rhetoric, it will take significant politicking and more time – an approach which Trump’s administration has not yet shown.

It is true that streamlining of FDA regulatory processes could reduce development times for drugmakers, but pharmaceutical firms should consider the long term dangers of heavy handed deregulation. Scaling back the requirements for approval could be disastrous for all. Most obviously, putting patients at undue risk by exposing them to treatments lacking efficacy, or even worse: safety, is a harrowing thought and would be completely unacceptable. It would also be damaging for pharma. Dubious new drugs flooding the market would damage the profits of quality drugmakers, with their ability to differentiate their product inhibited. Deharmonization with other regulatory bodies would increase drug lag and put up additional barriers for companies seeking approval in other countries. Furthermore, investors use FDA milestones in their decision making. If return on investment is less predictable, the money available for promising American startups would be spread more thinly and flow less freely.

Of course, we can’t yet be sure of the extent of the planned deregulation, but we will have a greater understanding of what to expect once Trump announces his pick for FDA commissioner. There are three main contenders in the race, all of whom are enthusiastic for reform to some degree. However, the appointment of Jim O’Neill in particular, an ardent libertarian and outsider, would be the strongest indicator that sweeping reform is imminent.

As for clarity on the implementation of price controls, expect uncertainty for the foreseeable future. While the repeal of the “Non-interference Clause” has some bipartisan support, a Republican congress is unlikely to vote it through without resistance. Furthermore, Trump has good reason to express support for significant change, but less reason to act on it. This administration is already proving unpredictable, and while pharma might appreciate the announced tax reforms, the threats on the horizon should certainly not be ignored.


PHOTO CREDIT: Gage Skidmore